This years major accomplishments are in the following areas: 1) Sonic hedgehog secreted by the auditory ganglion regulates timing of cell cycle exit and differentiation of sensory hair cells in the mammalian cochlea (manuscript submitted) Most neural and sensory systems follow a developmental program, in which the first neural precursors to undergo terminal mitosis are the first ones to differentiate into neurons. In contrast, sensory hair cells in the mammalian cochlea are regulated differently. Cell cycle exit of hair cell precursors is initiated at the apex of the cochlear duct and progresses towards the base, whereas hair cell differentiation starts at the base of the duct after cell cycle exit is completed. This unconventional cellular regulation may presage the tonotopic organization of the cochlea. In this study, we showed that a secreted factor, Sonic hedgehog (Shh), expressed in the auditory ganglion regulates the timing of terminal mitosis and differentiation of cochlear hair cells. The lack of the auditory ganglion source of Shh causes a premature cell cycle exit of hair cell precursors, followed promptly by hair cell differentiation in an apex to base direction. 2) The role of Sox2 in neurogenesis of the inner ear (manuscript submitted) Sox2 is required for multiple stages of neural development. First, it maintains proliferation of neural progenitors and confers neural competency. Then, Sox2 needs to be downregulated in order for neurons to differentiate. The molecular mechanisms underlying these processes are not well understood. In this study, we show that overexpressing Sox2 in the developing chicken inner ear induces Neurogenin1 (Neurog1), a gene required for neurogenesis. However, these Neurog1-positive cells do not delaminate from the epithelium to form neuroblasts of the cochleo-vestibular ganglion and they fail to express a key downstream neurogenic gene, Neurod1. Nevertheless, overexpressing either Neurog1 or Neurod1 readily induces neuroblast delamination from the otocyst. We postulate that neurogenesis cannot proceed when Sox2 is driven by an exogenous, unregulated promoter. Furthermore, we demonstrated that both Neurog1 and Neurod1 inhibit a phylogenetically conserved enhancer of Sox2 in vivo. In summary, we propose that Sox2 mediates neural competency by promoting Neurog1 expression, and progression of neural precursors to form neurons requires negative feedback inhibition of Sox2 by Neurog1 and Neurod1. 3) Specification of neural and sensory fates are related in the developing inner ear (manuscript in preparation) In the vertebrate inner ear, various sensory organs and their innervating neurons are thought to derive from a common neural-sensory competent domain (NSD) in the developing inner ear at the otic cup and otocyst stages. Several lines of evidence suggest that the vestibular and auditory neuronal fates are already determined at the otic epithelium before neuroblasts exited from the NSD. Based on the locations, these lateral, vestibular and medial, auditory neurogenic regions within the NSD may subsequently develop into the utricular macula and saccular macula, respectively. Additionally, genetic fate mapping studies indicated that the two maculae share a lineage with neurons of the vestibular and auditory ganglia. Together, these results suggest that establishment of the vestibular and auditory neurons as well as the fates of the two maculae may be related during development. We tested this hypothesis by first fate mapping the putative vestibular neurogenic region in the antero-lateral region of the developing otic cup using lipophilic dyes. Then, we followed the fate of these cells after medial-lateral inversion of the otic cup in ovo. If the vestibular neurogenic fate is already specified at the time of transplantation, the fates of vestibular neurons should be fixed but their location within the host may be inverted after transplantation. In addition to analyzing the neuronal fate, we investigated the fate of the otic region that gave rise to the vestibular neurons and determined whether it developed into the utriclar macula in these axial inverted specimens. Our results showed that both the vestibular neurogenic and utricular macula fates appear to be specified early before the otocyst is closed, suggesting that specification of neuronal and sensory organ types are likely to be related events in the developing inner ear. 4) Developmental mechanisms of balance disturbance associated with mutation of Ephrinb2 (manuscript in preparation) Ephrin-B2 (Efnb2) encodes a Type I transmembrane protein and serves as a ligand for various Eph receptor tyrosine kinases. The C-terminal intracellular domain of Efnb2 is itself phosphorylated by auxiliary kinases upon its binding to a receptor, leading to activation of second messenger activity in the ligand-bearing cell. Previous work found strain-specific circling and dysregulation of K+ homeostasis in adult mice hemizygous for a deletion of the Efnb2 C-terminus, but the cellular and molecular mechanisms responsible for this remain unknown. We have investigated the developmental bases for this disturbance by analyzing fetal ears from mice in which the entire Efnb2 gene is removed by Cre-mediated recombination, as well as from circling and non-circling strains of the Efnb2 C-terminal deletion in hemizygous and homozygous states. These studies reveal requirements for Efnb2 in regulating proliferation and apoptosis in the otocyst, as well as the initial outgrowth and patterning of the endolymphatic duct and sac. At later fetal stages, Efnb2 mutations affect the abundance on a cellular level - of endolympatic sac ion transport proteins and their one known transcriptional activator, Foxi1. Strong similarities between null and C-terminal deletion homozygote phenotypes suggest that signaling initiated by activated Efnb2 (rather than by activated Eph receptors) has critical roles in development of an inner ear ion transport epithelium. Current work seeks to determine whether homozygote mutant features exist in attenuated fashion in the C-terminal hemizygote fetuses of a circling strain.